[light contemporary music] - I'm Jon Steinberg, former
president of BuzzFeed and founder of Cheddar, recently bought by Altice USA, the fourth largest cable
provider in the country. Cheddar covers the
latest in national news, technology, business and culture across both cable and OTT platforms, broadcasting live five days a week from the New York Stock Exchange. The last 10 months have been a wild ride for business leaders, but not all industries
are feeling the same pain. New growth industries,
fueled by technology, are taking shape with the shift towards virtual work and online commerce. Many CFOs are making big moves right now to pivot into these growth opportunities, and create competitive advantages. In this series, we're going to be looking at these big moves, including the pivots companies are making into digital business models, the use of mergers and
acquisitions, or divestitures, to support that pivot, and the embrace of finance automation to drive productivity. I'm here with Doug Kehring, Executive Vice President and head of Corporate
Operations at Oracle. Doug, give us some
background about the company and what you do there. - Sure, so I've been at Oracle for a little over 20 years, and actually joined back right
before the dot-com crash, 'cause I wanted to invest in startups, back when that was the hot thing and corporate started
doing venture investing. And after I lost several hundred
million dollars at Oracle, I switched over and started working in our corporate development group, where I spent about 15 years doing all of our mergers and acquisitions, which totaled about 140 over
the last 15 years or so. But most recently, in
the last couple years, I've taken a broader role with the operational side of things, to look at how we transform the business from an on-premise company
to a cloud business, and what are all the
things that need to change in order to do that across
our business processes, our systems and our people. And that's occupied most of my time in the last four or five years. - Well, Doug, we'll talk
about the M&A in a moment, but Oracle has a history
overall of making big moves, and can you talk us through
some of the big moves that you're most proud of, that you think have
been most instrumental, in the company's tenure? - You know, we're still led by our founder, CEO Larry Ellison, and he's got a history of
really thinking through and making some dramatically smart moves. And in fact, back early
on in my tenure at Oracle, I was here for one of them, which was, at the time, that we did and announced
the PeopleSoft acquisition. No one really had made
significant acquisitions of software companies. It was just something you didn't do. In fact, in the years leading up to that, I still remember Larry indicating that, the idea that, "We write
code, we don't buy code." And then all of a sudden, of course, the dot-com crashed in the early 2000s, and there were a lot of companies that were sitting around
with quite low valuations, and at the same time our
customers were asking for Oracle to offer more
of the functionality, packaged together, at
the manufacturing plant. So we thought, what greater time than to start making some acquisitions, and we purchased PeopleSoft
and Siebel Systems and several other great companies, put them together, and really created a lot
more value for customers by having them from Oracle. So I'd say that, as a company, we really tried to figure out how to see where the puck is going, and skate to it, in that saying. Another great example was
as the cloud started up. You know, Larry Ellison himself was one of the early investors in some of the first cloud companies ever, including NetSuite and Salesforce.com. So he saw where the technology was headed, and he had Oracle begin making
those investments as well in the Fusion Application suite. And in fact today, we're ranked the number one Fusion ERP system in the world, mainly because of the foresight to make those investments
over a decade ago. And since then we've been
maturing that product and building up many customer references, to the point that most customers realize that if they want a
modern application suite that's built around cloud technologies, where they can get access
to quarterly innovation and new functionality, there's no one better than Oracle. - So let's stick with M&A. 150 acquisitions since 2005, with a market value of $80 billion. What has been the key
to that M&A strategy, and what do you look for
in a software company to make a big shift, to make a big move when you do an acquisition? - Having done that many transactions, I think it boils down
to four simple criteria. They're really easy, but
it took us a long time to figure out how to do them well. The first criteria is to
pick the right targets. You know, each acquisition
has got to be strategic to your business. It doesn't make sense to
be a collection of assets that don't fit together, because you can't create
value by having acquired them. You can't get unusual synergies in which you can return the value to your shareholders
and to your customers. So at Oracle we've always prided ourselves on ensuring that we actually
find the right companies that fit the best with our business. And when that's not the case, we don't make the acquisition. In fact, we walk away. I think that's held us in good grace, mainly because if you
look at us as a company from a divestiture standpoint, we've made no significant
divestitures to date, which means everything
that we put together under one roof has been strategic. Then the second criteria
is to pay the right prices. You know, it's really
easy to use your checkbook and write a runaway value for a company because you think it's strategic. And maybe it is strategic, but at the end of the day, you still have to make a
return for your shareholders. 'Cause you can get a way with
doing that once or twice, but you're not gonna get away with doing that for very long. So Oracle was extremely strategic early on in the cycle of making
software acquisitions, where we bought very marquee assets at two, three, four times' revenue. Today, companies are trading at 30, 30 to 40 times' revenue. So Oracle's been very disciplined about looking at acquisitions and ensuring that when we
find a strategic asset, that we only proceed when
we can find the right price, in which case we can generate
a shareholder return, so they can be around for our customers for the long haul. I think the third criteria
is to integrate effectively. So be the best integrator possible, which means that you've gotta think about how you bring these assets into your fold, so that the companies that
don't do any integration, the ones that leave their acquired assets on a standalone basis, it's very hard to generate synergies, which means, again, it's very hard to get a good return from those assets. But even more importantly, the employees and the
customers don't see it as an integrated company. They don't get a lot of
value from standalone assets. At Oracle, we try to use our systems and integrate the companies
very, very quickly, so that when we're done, after three or six months
of the integration process, there's but one company again. We have one HR group. We have one IT organization. We have one finance group. And so everybody's under the same system, and rolling together toward the, to help customers be more effective. And then the fourth criteria
for success is to repeat, and by that I mean you really have to be in the acquisition business, or not. It doesn't make any sense for you to do one acquisition
every now and then, because you won't build
up the knowledge base and the experience in order
to make the next acquisition even more effective. You know, so at Oracle, over my timeframe, we've averaged about 10
to 12 acquisitions a year, which means that we can dedicate resources across every function, to helping integrate these acquisitions quickly and effectively. And they learn each time, that after every deal we can sit back and look at the
transaction and understand, what did we do right? What did we do wrong? And in the cases of, where we might have done something wrong, we figure out how to
do it more effectively or better the next time around. And that means that we can
outcompete for these assets compared to our peers, because we know how to do this so well. - Over the summer of 2020, Oracle worked with McKinsey
& Company and AICPA on a content series
highlighting how finance teams can best respond to the
challenges of COVID. One of the key takeaways was that companies need
to be thinking about business model innovation. Now that's a bit surprising to me, Doug, because I would think during COVID, they would be thinking about
kind of crisis management. Talk to me about how
business model innovation came out of that study. - Obviously people have been a lot more receptive to change as a result of the pandemic. Many of us have never worked from home, and all of a sudden we're
caught in a situation that wasn't business as usual. And over the first few,
I'd say the first few weeks or the first month or two of this work-from-home environment, I think people got up
to speed really quickly, and we started realizing that you actually could be
more productive than ever, from an efficiency standpoint, and that resulted in not only
sorta not worrying about, is there downside here, to this new environment, but what's the upside? And I think the upside has been that there's a real opportunity to take a look at your business, and try to figure out how to accelerate the pace of change, that we've all been down this idea that digital transformation is front and center of the future, and we've been advocating
for this for a long time, is to move to more of a digital business, to do more things online and to create an environment in which you leverage technology to help drive your business. And we're actually all realizing that the digitization of our business is creating a lot of efficiencies. So what it's resulting in is an acceleration of that. So now people are like, oh my gosh, let me look at other ways that I can accelerate these moves. So whether it's the cruise industry, technology industry, retail, et cetera, it's a great opportunity
during this pandemic to make some of these changes. - I wanna ask you about
the scale of these changes. I was reading a white
paper that Oracle put out about big moves, and it said to look for big moves that are not 10% increases
to the top or bottom line, but are rather 30, 40, 50%
changes to a business unit, on either the top line or the bottom line. How would a company the size of Oracle, would you advise either your peers or your partner companies to think in terms of scale that big, when thinking about
business model innovation? - My experience so far,
in the last five years, is one in which, you have
to be sure as a company that you have someone
thinking about those things. So left to their own, what I do find is that most businesses just go about their day-to-day processes. So incremental change is all
they have the stomach for, and, because it's all they're looking for. So the idea being is, I
did what I did yesterday, and today I'm gonna wake
up and do the same thing. So I might grow five or 10% faster if I do a better job at this, but it's not gonna transform, because I'm not thinking about that. And one of the things that, what we talk to our customers about and certainly we follow here at Oracle is, how to transform at an even speedier page. How do you really disrupt your business? And I have a whole team that
looks across the company and we're constantly evaluating, where are we inefficient? Where, based on customer feedback, could we do things
dramatically differently? Where are we missing product opportunities to fit gaps, et cetera, and then we rally the teams to not only build a strategy and a business model for that, but then create the systems that need to be implemented in order to effectively drive it, and then just go out
in project management, through the process. And these things added together result in that opportunity where you can look at things and find huge opportunity
for revenue growth that might be there. Now, that being said, all of these things take time, so you might have a great growth vehicle and you're suffering from other areas in which your businesses
aren't growing as fast. But in every case, whether you're high growth,
mid growth or low growth, you can shift the model in a material way if you're constantly looking at that transformation exercise. - And back to the pandemic. When you overlay the pandemic with that transformation exercise, has it allowed you to speed things up? Has it grinded certain things to a halt? How has overlaying the environment impacted that kind of transformation you were just talking about? - The big thing is that there's been a change in the cultures, the cultures internally at Oracle and the cultures of our customers, in terms of their willingness to look at different things, right? I mean, you go from the standpoint of having lived for 30, 40, 50 years, and nothing was really different. You got up, went to the
ballgame on the weekends. You played your golf, et cetera. We really as a society
never had a disruption of the level that we've seen. Then all of a sudden you're told, "Stay at home", right? "Don't go outside. Don't go to the supermarket," et cetera, et cetera. And all of a sudden people like, we're gonna, we gotta be flexible here. We gotta start thinking differently. And that's allowed people to kind of change their thought process and be much more open to
doing things differently, all the way down to just
the most simple things, like my core financials, for instance. You know, you would
think during a pandemic, again, that would be a, you know, gee, do I really wanna
do something like that when my employees aren't
in the office, et cetera. The reality is, it's the perfect time, because that's a time in
which you have the opportunity to look at things differently. You can sit down and revisit
your business processes, and really not only
implement a new system, but implement a new way of doing business that will benefit you for
the next 20 or 30 years. - How much did being in the cloud already and having all those financial systems in the cloud already make that possible, and how much more difficult do you think it would have been if you were not a cloud-based organization? - Cloud is the great enabler, because when we look back
in the previous 40 years as a non-premise business, where you took your upgrades
to your core systems every four or five years if you're lucky, sometimes it was oftentimes
longer than that. That meant that between
those upgrade processes you had absolutely no
innovation in your systems because it was frozen
during that time frame. So now with the cloud, you're getting these
updates every 30 days. So every 30 days you have an opportunity to evaluate new technology,
new capabilities, and essentially the flywheel
becomes much, much faster in being able to transform your business. So when I look at some
of the internal things that we've done, like the accelerated buying experience, which was one of our first undertakings to transform how Oracle does
business with our customers, with the idea of being, we've just gotta be easier
to do business with, in this new service-based world. That we don't want contracting to last for months on end. We want you to choose the
product you want from Oracle, get it, and get it agreed to very quickly. And so empowering our field, giving them the system and
tools in order to do that without a lot of delay, was one of our imperatives. But we didn't know what the
architecture should look like for that business model immediately. It changed over the
course of a few months. And so the cloud enabled us to go back and grab new functionality and continue to improve
that process as we went, at a pace that, again,
would never have been available to us if we were using on-premise license software. - You led that project
for Oracle, correct? - Yes, I mean it was obviously
a very large team effort, but one of the big things we have is a transformation office
that helps program manage these disruptive activities. - So how would you take what you learned in doing it for yourself, and apply it to a multinational
Fortune 100 business, a move to the cloud, for one that maybe is
completely still on-premise? - The tracks have been laid. People have come before this, whatever business that we
would be talking about. So, you know, obviously there are early movers to the cloud, and there are later movers on that front. But when a company of Oracle's scale has been able to fully move
their applications to the cloud, and, you know, we're a complex business that operates in almost
every country in the world, that has dozens of languages
that we operate in, which lots of different payroll systems throughout the world, that has to, has software and hardware and multiple product lines, as well as a hardware
supply chain, et cetera. I mean, no matter what it is, we sorta face it as a company, and yet the cloud has
been this enabler for us. So we see across every
one of our industries, in terms of our customer base, that there's none of them that can't take advantage of the cloud. But you have to be willing to
make an investment in that, and you have to be ready for that change. There are believers, in terms of how to disrupt their businesses, because they see how they're
being attacked around them, and there are others that might be, might be more hesitant to do so, in which case the safest
choice is to do nothing. The trouble is, the do nothing approach only lasts for so long, and ultimately has a more likely tendency to make your business irrelevant, as opposed to one in which
you're a innovation leader. - Doug, what are the unique
opportunities Oracle sees where you're accelerating your investment? - You know, I think Oracle sits at a very unique place
in the technology arena, and that's because we are
the only cloud provider that is offering both the applications as well as the
infrastructure capabilities. And why is that unique? It's unique because, first off, in the applications arena, we've got an end-to-end set of capabilities so that, will ensure that even
the most complex company can run their business
in a very digital way. And all of those capabilities, including our Fusion cloud services, all run on our infrastructure, Oracle Cloud Infrastructure, OCI. And OCI has been built with autonomous right in all of our capabilities. So the concept being is that whether it's our applications
or your applications, we can run on a common infrastructure that is best in class, is most innovative in
terms of its capabilities, but are also deeply embedding
autonomous features in it, that will allow the infrastructure to maintain and run itself
without human intervention. So across all these capabilities, I think at any business, in any industry, in any part of the world, can find Oracle as a great partner, in which all they need to do is give us their most difficult, most challenging problem, and between these applications and infrastructure cloud capabilities, we can help bring value that will automate their business, accelerate it to a digital world, and enable them to gain much more value than if they did nothing or
worked with another vendor. And ultimately, if an
Oracle customer walks away and goes, "Gee, Oracle's aligned to what I'm trying to achieve, and their success is
built around my success, and as a result, when I succeed, I'm gonna tell the world all about it, because I think this is a great thing," then we've hit the home run, and we're at escape velocity, from a business standpoint. - That does sound like the home run. And we'll have to leave it there. Doug Kehring, thank you so
much for joining us today, and I'll see you again soon. - Appreciate it, thank you for time.
